The Syracuse Common Council on Monday passed two measures intended to rein in a lucrative property tax exemption after reporting by syracuse.com showed that some developers saved millions using the tax break in ways never intended by lawmakers.
The council voted unanimously to amend local law by giving the assessor more explicit authority to reject applications for the so-called 485-a exemption, which the city first adopted in 2010. The amendment specifically aims to exclude projects that involve demolishing old buildings to make way for new construction.
The 485-a exemption was intended to subsidize the renovation of existing, under-used commercial buildings by converting them to a mix of residential and commercial space. Syracuse officials say the generous tax break has been a critical ingredient in the restoration of important downtown landmarks such as the State Tower Building and the Pike Block.
But the largest exemptions in Syracuse have gone to a different type of project: brand-new buildings that replaced older structures that were demolished. Four such buildings constructed since 2016 – all luxury student apartment buildings on University Hill — save a total of roughly $4 million a year from 485-a exemptions.
Demolition is not what state lawmakers had in mind when they created the tax break, U.S. Rep. Brian Higgins, D-Buffalo, told syracuse.com last year. Higgins sponsored the original 485-a legislation in 2002 when he was a state Assembly member.
The amended Syracuse law says the assessment office should “narrowly construe’’ the 485-a exemption by excluding “projects that primarily consist of demolition of the existing real property (i.e., 60 percent or more of the existing building).’’
Councilor Tim Rudd said the new legislation was intended to remove some of the ambiguity about which projects qualify. “We adjusted our local law with the hope of adding clarity that the assessor can say ‘You don’t qualify for this’ based on the intent of the law,” he said.
The second measure passed by the council Monday asks state legislators to further clarify the law on 485-a exemptions. (Municipalities have the option to adopt the tax break or not, but the basic rules are set by the state.)
Syracuse councilors voted unanimously to request state legislation to specify that 485-a projects must end up with at least 15% of the pre-existing floor space devoted to commercial use and at least 15% used for residences. That change aims to prevent developers from including token commercial space to qualify for the tax break, another problem cited by syracuse.com’s reporting.
In one case, the developer of a sprawling Syracuse apartment complex told city officials that several vending machines in the lobby qualified as a commercial use, city officials said last year. After assessor David Clifford refused to accept that, the complex added a small retail space, Clifford said. A beauty salon currently occupies the space.
Clifford said the measures passed Monday are “a step in the right direction’’ toward restricting the tax exemption to its intended purpose.
If Mayor Ben Walsh signs the legislation amending local law, it would only apply to new projects. Property owners with existing exemptions would not be affected.
Walsh supports the legislation, said Greg Loh, the mayor’s chief policy officer. The mayor will make a final decision on whether to sign it after a public hearing, which will be scheduled sometime during the next three weeks, Loh said.
The 485-a exemption provides 12 years of tax breaks. Developers get a 100 percent exemption on their building improvements for eight years, after which the tax discount phases out over four years.
At least four large Syracuse developments with 485-a exemptions were built on the site of structures that were demolished. The owners pay taxes on what their properties were worth before construction, but avoid taxes on the property improvements they made.
— Theory Syracuse, at 919 E. Genesee St., saves an estimated $1.8 million a year in avoided taxes on $46.3 million of exempt property value.
— The 505 on Walnut, at 1200 E. Genesee St., saves more than $960,000 a year on $24.4 million of exempt property value.
— The Marshall, at 727 S. Crouse Ave., saves roughly $900,000 a year on $23.2 million of exempt property value.
— U Point Syracuse, at 404 University Ave., saves about $400,000 a year on $10.6 million of exempt property value.
State lawmakers earlier this year proposed legislation to reform the 485-a exemption. The bill passed the Assembly in June but was pulled from consideration in the Senate after the sponsor opted to revise some wording. At the time, lawmakers said they intended to bring back the legislation in 2020.